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Sprint Executives Defend $15.5 Billion IPhone Deal

05/15/2012 | 03:05pm US/Eastern
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--Sprint says iPhone deal was necessary to compete

--Sprint is paying Apple $15.5 billion over several years

--Sprint defends deal at annual shareholder meeting

(Updates to include details of Apple deal throughout.)

 
   By Greg Bensinger 
   Of  
 

Sprint Nextel Corp. (>> Sprint Nextel Corporation) defended to shareholders its deal with Apple Inc. (>> Apple Inc.) to buy $15.5 billion in iPhones over the next several years, saying the commitment is necessary to compete with its larger rivals and will help keep customer turnover at bay.

"We're very glad" Sprint struck the deal with Apple, Chief Executive Dan Hesse said at the company's annual meeting. "Carrying the iPhone will be quite profitable." The company has said it won't make an initial profit on the device until 2015.

Apple is able to command some of the highest subsidies in the industry because of the iPhone's popularity. As a result, carriers, including Sprint, have been pushing alternative devices, particularly smartphones that run on the next generation high-speed mobile broadband network known as 4G LTE.

Sprint Chief Executive Dan Hesse agreed this month to cut $3.25 million from his compensation package after shareholders complained that the formula to determine his pay package didn't account for the hefty upfront expense of carrying the iPhone, which has some of the highest subsidies in the industry. Before that, the company had agreed to boost Hesse's 2011 total pay by 31%, to $11.9 million.

The carrier's fifth-largest shareholder, the Ontario Teachers' Pension Plan, said this month that it would oppose Hesse's and Chairman James Hance's re-election to the board--as well as other members of the compensation committee--because of Hesse's pay in light of what it said was poor operational performance. Shareholders Tuesday voted to re-elect the full slate of directors.

Hesse pointed shareholders to other benefits of the iPhone, noting that the device helped provide protection against litigation over Google Inc.'s (GOOG) Android operating software and allowed it to trim a costly loyalty program put in place to prevent customers from leaving for other carriers offering the device. Sprint activated 3.3 million iPhones over the past two quarters, compared with 11.9 million at AT&T Inc. (>> AT&T Inc.) and 7.5 million at Verizon Wireless.

"If you have any doubt go look at T-Mobile's net subscriber numbers," Hesse told shareholders. T-Mobile USA is the only major carrier without a deal to carry the iPhone and has lost contract customers in 10 straight quarters.

Hance said the board was disappointed with the performance of Sprint's share price, which fell 45% last year, before rebounding 6.8% this year prior to today.

"The stock is not where we want it to be," Hance said. "Your frustrations are keenly felt."

Sprint was recently unchanged, at $2.50.

-By Greg Bensinger, Dow Jones Newswires; 212-416-4676; greg.bensinger@dowjones.com

Stocks mentioned in the article : Sprint Nextel Corporation, Apple Inc., AT&T Inc.
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